Cap on income tax reliefs
In the 2012 Budget, the Government proposed the introduction of an anti-avoidance mechanism to be introduced in April 2013: capping income tax reliefs at 25% of income or £50,000, whichever is greater. The consultation on the proposals, which have been widely criticised, closed in October 2012 and we have yet to see any response.
Whilst there was a relatively speedy climb-down by the Government over relief for charitable giving in response to intense lobbying, this measure is still likely to have a far wider impact, on far more taxpayers, than were intended to be targeted, based on the policy objectives. Those claiming relief for income tax losses on EIS investments, as well as businesses with genuine trading losses who are struggling to stay in the game in the current economic environment will all be caught.
Reduction of the annual allowance for pension contributions
High on the Chancellor’s agenda are further changes to the pension rules, the latest suggestion being the reduction of the annual allowance from £50,000 to £40,000 as a revenue raiser. The danger is that the introduction of further restrictions on pension tax relief will reduce the incentive to save for retirement at relatively modest income levels.
Statutory residence test
Finalised rules for a new statutory residence test to apply from 6 April 2013.
Inheritance tax – simplification of charges on trusts
The consultation on proposals for a new simplified basis for charging inheritance tax on discretionary trusts on each tenth anniversary, or on the disposal of assets by the trust, closed on 5 October 2012. The current rules are complex and impractical; often resulting in disproportionately large professional costs being incurred to calculate a relatively small tax charge. The ability for trustees to opt for a straight 6% rate where the tax is minimal is a step in the right direction, but further changes such as simplified IHT returns and an on-line calculator would also be welcomed. We wait with interest for HMRC’s reaction to the consultation paper responses.
Transfer of assets and gains in non-UK resident companies owned by UK residents
Certain anti-avoidance provisions (‘transfer of assets abroad’ and ‘taxation of gains in non-resident companies’) are currently viewed by the European Commission as restrictive and contrary to the EU Treaty Freedoms. The rules result in disadvantageous tax treatment for shareholders of an EU (but not UK) incorporated company, caught under the anti-avoidance rules, compared to shareholder of a UK company. Proposals to align the treatment of an EU company were put forward for consultation but we do not believe that they went far enough to satisfy the EU requirements and are therefore likely to require further consideration by Government. As a result proposals are unlikely to feature in FA 2013.
